UK service sector grows at fastest rate for ten months

The latest Markit/CIPS UK Services PMI report for August shows the sector has grown at its fastest rate for nearly a year.

The latest rise in activity was underpinned by another sharp gain in underlying volumes of new business said the report and Job creation has also been sustained.

Despite this it continued to say that '…there was some concern amongst panellists over the underlying strength of their business pipelines, and this led to a fall in overall confidence to a 15-month low'
Input price inflation has also been sustained because of higher wage and salary costs but this has been offset by lower energy and fuel costs.

"An acceleration of growth in the vast services sector and an on-going construction boom offset a weakened performance in manufacturing in August. The three PMI surveys indicate that the economy grew at the fastest rate since last November, providing further ammunition for policymakers arguing for higher interest rates."

David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply said:

"The UK service sector grew at its fastest rate for ten months in August but reductions in confidence combined with capacity pressures mean that growth may be close to peaking. New business volumes continued to rise, albeit at a gentler rate, as market conditions remain favourable and clients commit to new contracts. However, the outlook is not as bright as previous months, as a mixed bag of concerns, principally over how robust the business pipeline will continue to be, resulted in confidence declining to a 15-month low."

Martin Beck, senior economic advisor to the EY ITEM Club, commented:

"A further improvement in the CIPS services survey in August wraps up a generally positive set of PMI's for the month. GDP growth in the quarter should at least keep pace with the 0.8% quarter on quarter expansion seen in the three months to June.

"With July seeing the largest monthly rise in the headline activity balance of the CIPS services survey since October 2013, some softening in August's reading was anticipated. However, the balance confounded expectations rising to a 10 month high.

"There is still no indication that rising activity is translating into inflationary pressures. If anything the CIPS services survey showed a fall in the rate of growth of output prices. All in all there seems little chance that the current minority of hawks on the MPC will become a majority any time soon."